Infosys presented their annual as well as quarterly set of earnings last week and today stock has reacted very negatively to the same. Though numbers looked strong they were below the street consensus estimate.

The company reported Constant Currency (CC) growth of 15.4% for FY23, with significant contributions from digital business and core services. The digital business grew by 25.6%, accounting for 62.9% of overall revenue, while core services also saw growth at 1.9%. The company witnessed broad-based growth across business segments, with double-digit growth in most areas, which is a good development.

The company shared that it had 26% growth in Europe and 12% growth in the U.S., despite talks of recession. They succeeded in securing 95 large deals with a total value of $9.8 billion for the year. The operating margin for the full year was 21%. Furthermore, the company generated a free cash flow of $2.5 billion (nearly 85% of net profit), highlighting its strong financial position.

Company achieved a YoY growth of 8.8% in constant currency for Q4, although there was a QoQ decline of 3.2%. Operating margin for the quarter remained at 21% and they secured $2.1 billion in large deals during the quarter.

One of the key drivers of success in financial year 2023 has been focus on leveraging generative AI capabilities for clients and for the company. It has actively worked on projects with clients to apply generative AI platforms to address specific areas within their business.

Company also shared that their client metrics remained strong, with the number of 50 million clients increasing to 75, 100 million client count increasing to 40, and 200 million client count increasing to 15.

Furthermore, their attrition rate has continued to decline in each of the quarters throughout the year, with long-term voluntary attrition reaching 20.9%. Quarterly annualized attrition also reduced by over 4% sequentially, and it is currently at its lowest level in the last nine quarters, well below pre-pandemic levels.

Company has a very diverse portfolio of clients in the U.S. and hence, exposure to multiple regional banks is less than 2% of overall revenues, which is again a positive.

However, the picture is not all green!

The company faced challenges in the market environment during Q4. Company experienced unplanned project ramp downs in some of clients and delays in decision-making, resulting in lower volumes.

Company acknowledged that some industries such as financial services, mortgages, asset management, investment banking, telecom, hi-tech and retail have been more impacted, leading to uncertainty in spend and delays in decision-making. The U.S. has been more affected than Europe, it said. However, company remained committed to working with clients as they navigate changes in the economic environment and continue to seek opportunities for growth.

The company is also facing challenges on the margin front. However, to mitigate these challenges, company expanded internal efficiency and cost program. They believe that measures taken will help them build a path to higher margins in the medium term while ensuring that they continue to invest in people during this period.

About the revenue guidance, the company mentioned that they expect revenues to grow by 4% to 7% in FY24 in constant currency terms, which came as a disappointment against the FY23 CC growth of 15.4%., hence the stock seems to have reacted today by wiping out 10% from the market capitalisation of the company.